Hoosier v. Interinsurance Exchange of the Automobile Club

Cite as 2014 Ark. App. 120
ARKANSAS COURT OF APPEALS
DIVISIONS I & II
No. CV-13-524
Opinion Delivered February 19, 2014
JOEY HOOSIER ET AL.
APPELLANTS APPEAL FROM THE GARLAND
COUNTY CIRCUIT COURT
V. [NO. CV-10-952]
HONORABLE MARCIA R.
INTERINSURANCE EXCHANGE OF HEARNSBERGER, JUDGE
THE AUTOMOBILE CLUB
APPELLEE AFFIRMED
JOHN MAUZY PITTMAN, Judge
This case involves a motor-vehicle accident that occurred on September 10, 2009,
in Arkansas. Appellants were traveling on Interstate 30 when they were struck head-on by
a vehicle driven by Jerry Adams. Mr. Adams, who was determined to be at fault in that
accident, had automobile insurance with a policy limit of $50,000. Appellant Cyrena
Hoosier sustained severe injuries and incurred approximately $200,000 in medical bills. Mrs.
Hoosier was an insured on an automobile-insurance policy issued by appellee Interinsurance
Exchange (AAA) with a limit of $50,000 for damages caused by an underinsured motorist.
Appellants brought an action against AAA asserting that they were entitled to underinsured-
motorist benefits under their policy. The trial court granted summary judgment to appellee
AAA, and this appeal followed. We affirm.
The crucial question in this case is whether the law of California or that of Texas
should be applied in interpreting the underinsured-motorist provisions of appellants’
Cite as 2014 Ark. App. 120
insurance policy. The Arkansas Supreme Court has long held that matters bearing upon the
interpretation of a contract are to be determined by the law of the place where it is made.
Howcott v. Kilbourn, 44 Ark. 213 (1884). Appellants were residents of California when their
automobile-insurance policy was issued in that state on March 21, 2009, under the auspices
of the AAA Automobile Club of Southern California. The policy expiration date was March
21, 2010. Part IV of the insurance contract sets out the terms of the uninsured and
underinsured-motorist coverage (Coverage F). The definitions section of Coverage F
provides that:
Underinsured motor vehicle — means a motor vehicle which at the time of the
accident is either:
(a) insured under a motor vehicle liability policy or an automobile liability insurance
policy; or
(b) self-insured; or
(c) covered under a cash deposit or bond posted to satisfy a financial responsibility
law;
but for an amount that is less than the limits shown in the declarations for
COVERAGE F.
The policy language mirrors the definition of underinsured motor vehicle set out by
the California legislature in California Insurance Code § 11580.2(p)(2) (Deering 2009).1 The
meaning of this provision under California law is clear:
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“‘Underinsured motor vehicle’ means a motor vehicle that is an insured motor
vehicle but insured for an amount that is less than the uninsured motorist limits carried on
the motor vehicle of the injured person.”
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Underinsurance coverage does not apply unless the tortfeasor’s vehicle is an
underinsured motor vehicle. An underinsured motor vehicle, by definition, is a
vehicle insured for an amount that is less than the uninsured/underinsured motorist
limits carried by the injured person. Thus, if the tortfeasor is insured for an amount
equal to or greater than the uninsured/underinsured limits of the injured person, that
person never gets to collect any underinsurance coverage.
State Farm Mutual Automobile Insurance Co. v. Messinger, 283 Cal. Rptr. 493, 496 (Cal.
Dist. Ct. App. 1991).
In the present case, the tortfeasor (Adams) was insured for liability for bodily injury
in the amount of $50,000 per person. The uninsured/underinsured-motorist limits of the
injured persons (appellants) were likewise in the amount of $50,000 per person. The
amounts being equal, appellants’ underinsured-motorist coverage under their AAA policy
was, under California law, never triggered, and they are not entitled to collect any
underinsurance amount from AAA. See id.
Recognizing this, appellants assert no claim under California law. Instead, they argue
that the provisions of their insurance policy are governed by Texas law because they had
moved to Texas three months before the wreck, as reflected on a change to the declarations
page of their policy noting that their residence had changed to Houston, Texas, effective
June 4, 2009, and that there would be no change to the premium. Appellant Joey Hoosier
asserted that, when he went to appellee’s office and notified their insurer of their move, he
was told that the policy “was converted to a Texas Policy.” The location of the branch
office and the employee to whom Mr. Hoosier spoke were not identified. Appellants argue
that this presented a question of material fact that precluded the grant of summary judgment,
and that the trial court therefore erred by granting it.
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Summary judgment may be granted only when there are no genuine issues of material
fact to be litigated and the moving party is entitled to judgment as a matter of law.
Nationwide Mutual Fire Insurance Co. v. Citizens Bank & Trust Co., 2014 Ark. 20, ___ S.W.3d
___. Once the moving party has established a prima facie entitlement to summary judgment,
the opposing party must meet proof with proof and demonstrate the existence of a material
issue of fact. Holt Bonding Co. v. First Federal Bank, 82 Ark. App. 8, 110 S.W.3d 298 (2003).
On appeal from the grant of summary judgment, we determine if there are genuine issues
of material fact in dispute by viewing the evidence in the light most favorable to the party
resisting the motion and resolving any doubts and inferences against the moving party.
Nationwide Mutual Fire Insurance Co., supra. As to the issues of law presented, our review is
de novo. Id.
Whether appellants’ move caused their California-issued insurance to be “converted
to a Texas Policy” is a matter of law, not of fact, and we therefore afford no weight to the
asserted hearsay statement of an unidentified branch-office employee in determining whether
summary judgment was proper. Instead, we look to the insurance contract itself. Although
the policy-change declarations page did reflect a change of residence by appellants, it
expressly stated that “[t]hese declarations, together with the contract and the endorsements
in effect, complete your policy.” The only reasonable conclusion to be drawn from this
language is that the original California policy remained in effect despite appellants’ residence
change.
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The only reference to a change of primary residence as affecting a policy provision
appears in the “Guaranteed Renewal Endorsement” in which the insurer agreed not to
cancel or refuse to renew the policy, but which stated that this agreement would become
void upon the occurrence of specific enumerated events, including if “[y]our primary
residence is outside the state of California.” Plainly, the agreement that would become void
upon such a change of residence was the agreement to guarantee renewal; with respect to
the policy per se, the Guaranteed Renewal Endorsement expressly provides that “[a]ll
provisions of your policy not affected by this endorsement remain unchanged.”
In the absence of any material change to the policy provisions upon appellants’ change
of residence, the only remaining question is whether the change of residence from California
to Texas had the legal effect of changing the state in which the insurance policy was issued.
Under Arkansas law, it did not. The law of the place where the contract was made prevails.
Lincoln National Life Insurance Co. v. Reed, 234 Ark. 640, 353 S.W.2d 521 (1962).
The validity, interpretation and obligation under a policy applied for, executed and
delivered to the insured in one state has been held governed by the law of that state,
though the insured subsequently moved elsewhere. The laws of the latter place apply
only to remedy and procedure.
Id. at 643, 353 S.W.2d at 523.
Affirmed.
GLADWIN, C.J., and WALMSLEY and WOOD, JJ., agree.
HIXSON and BROWN, JJ., dissent.
KENNETH S. HIXSON, Judge, dissenting. On the facts of this case I believe the trial
court erred in applying California law to the Hoosiers’ underinsured-motorist claim against
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the appellee. Because Texas law should have been applied, I dissent from the majority’s
holding and would reverse and remand.
In this case the parties agree that if California law applies, the Hoosiers are not eligible
to receive UIM benefits. However, if Texas law applies, the Hoosiers are entitled to UIM
benefits assuming their damages exceed the limits of the tortfeasor’s policy as they claim.
In deciding whether California or Texas law should apply, there are two significant
Arkansas cases. In reaching its conclusion that California law applies to this case, the majority
relies on Lincoln Life v. Reed, 234 Ark. 640, 353 S.W.2d 521 (1962). Lincoln generally stands
for the proposition that the doctrine of lex loci contractus (lex loci) should apply in a choice-of-
law insurance case. Lexi loci provides that the law of the jurisdiction where the contract was
entered into should apply. One of the primary rationales behind the lex loci rule is that the
law associated with the location of risk should control. The supreme court in Lincoln held
that, where the insured purchased several disability policies in Tennessee and later moved to
Arkansas, the law of Tennessee applied to his disability claim.
The second case is Southern Farm Bureau Casualty Insurance Co. v. Craven, 79 Ark. App.
423, 89 S.W.3d 369 (2002). In that case, the Cravens were Arkansas residents and purchased
an auto-insurance policy through Southern Farm Bureau. The Cravens were injured in an
accident in Colorado, and they asked the Arkansas court to apply Colorado law, which
mandated significantly higher UIM coverage than that required under Arkansas law. The trial
court declined to apply Colorado law, and we affirmed.
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In Craven, we acknowledged that choice-of-law questions regarding insurance
coverage have traditionally been resolved by applying the lex loci rule. However, we also
observed that, in addition to the easy applicability of the lex loci rule, courts sometimes
consider, in addition to the place where the contract was made, which state has the most
“significant contacts” with the issue at hand. The contacts to be taken into account include
(1) the place of contracting; (2) the place of negotiation of the contract; (3) the place of
performance; (4) the location of the subject matter of the contract; and (5) the domicile,
residence, nationality, place of incorporation and place of business of the parties. Craven,
supra. We noted in Craven that Arkansas courts have not applied the significant contacts
analysis in a case involving an insurance contract, but it has been applied in the case of
ordinary contracts. See Ducharme v. Ducharme, 316 Ark. 482, 872 S.W.2d 392 (1994).
In Craven, we held that whether the lex loci rule or the significant contacts analysis was
applied, the insurance contract at issue was governed by Arkansas law. That was because
although the traffic accident occurred in Colorado, the auto-insurance contract was made in
Arkansas, and virtually all significant contacts were with the state of Arkansas. The insureds
were Arkansas residents, the contract was written through an Arkansas agent, the insured
vehicles were registered and principally located in Arkansas, and the policy complied with
Arkansas law regarding minimum coverages.
It should be noted that the insurance policy at issue in Lincoln was a disability policy
as opposed to an automobile policy, and the underwritten risk for disability would not be
significantly different for Tennessee versus Arkansas. It should also be noted that the Lincoln
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court relied in part on the 1962 version of Appleman on Insurance, and that since that time
there have been significant changes to insurance law and in the itinerant nature of our society
in general. While the lex loci approach was dominant in 1962, the “significant contacts” test
has since gained popularity.
The 2013 version of Appleman is more on point than the 1962 version cited in Lincoln.
Appleman on Insurance § 6.02[2][a] (2013) provides in part:
The lex loci rule was adopted in the first Restatement of Conflict of Laws in
1934. The primary virtues of the rule were thought to be simplicity and certainty,
although its application has become more complex in modern times. Once the
majority rule, it is now followed by only ten states. [Arkansas was not cited as one of
the ten states].
Under the modern Restatement 2d rule, the most significant relationship test is now the
majority approach, as many states have found the traditional lex loci test too rigid in its
application. Restatement 2d § 193 provides, “The validity of a contract of fire, surety or
casualty insurance and the rights created thereby are determined by the local law of the state
which the parties understood was to be the principal location of the insured risk during the
term of the policy,” unless some other state had a more significant relationship to the
transaction and the parties. Appleman on Insurance § 6.02 [3][b] (2013).
Similarly, C.J.S. on Insurance, also cited in Lincoln, more recently sets forth the
significant relationship test. 44 C.J.S. Insurance § 28 (2007) provides:
Fire, surety and casualty insurance: In the absence of an effective choice of law by the
parties, the validity of a contract of fire, surety or casualty insurance and the rights
created thereby are determined by the local law of the state which the parties
understood to be the principal location of the insured risk during the term of the
policy unless with respect to the particular issue, some other state has a more significant
relationship. . . . For purposes of this test, an insured risk is the object or activity
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which is the subject of the insurance, and it has its principal location in the state where
it will be during at least the major portion of the insurance period. Under this test, even
if the principal location of the risk shifts to some state other than the state at the time of
contracting, application of the law of the other state would not be unfair to the insurance company
if the insurance company had reason to foresee there might be a shift in location (emphasis
added).
Turning to the facts in the case at bar, the auto-insurance policy purchased by the
Hoosiers in March 2009 was undeniably a California policy at that time. The insurance
contract issued in California contained a “guaranteed renewal endorsement” providing that
the agreement became void in the event that the Hoosier’s residence was outside of
California. However, in June 2009 Joey Hoosier notified his insurance agent that the
Hoosiers had moved from California to Texas, and in his affidavit Mr. Hoosier stated that the
agent informed him that the insurance contract was converted to a Texas policy and that no
additional premium was required. The appellee insurance company, IEAC, was authorized
to issue insurance policies in Texas, and in June 2009 it acknowledged the move to Texas and
issued a new declaration sheet reflecting the new Texas address.
In my view, this case is governed by Texas law whether we use the lex loci contractus
approach or the significant contacts approach. Even though the contract was originally made
in California, it was effectively reissued in the state of Texas after the Hoosiers moved there
and IEAC issued a written policy change for a change of residence, with a policy-change
effective date of June 4, 2009. Even under lex loci, one of the most important underlying
rationales is the location of the risk. Here, the location of the primary risk was in Texas, and
IEAC was fully aware of that location. Under the significant relationship approach, all the
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contacts are in Texas. The only relationship with California is that California is probably
where the premiums were sent.
Therefore, in my view the trial court erred in applying California law and thereby
entering summary judgment for IEAC. Because Texas law should have been applied, and the
parties agree that under Texas law the Hoosiers may make a claim for underinsured-motorist
benefits in excess of the tortfeasor’s policy limits, the summary judgment should be reversed.
I would reverse the summary judgment and remand for a trial for the Hoosiers to present
evidence of their damages.
BROWN, J., joins.
Paul Pfeifer, for appellants.
Laser Law Firm, P.A., by: James M. Duckett, for appellee.
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